Medina v. Becerra

United States District Court, N.D. California

November 16, 2017

RENE MEDINA, Plaintiff,v.XAVIER BECERRA, in his official capacity as ATTORNEY GENERAL of the STATE of CALIFORNIA, WAYNE QUINT, JR., in his official capacity as the CHIEF of the CALIFORNIA DEPARTMENT OF JUSTICE, BUREAU of GAMBLING CONTROL, an agency of the STATE of CALIFORNIA, and JIM EVANS, LAUREN HAMMOND, and, TRANG TO, in their official capacities as members of the CALIFORNIA GAMBLING COMMISSION, an agency of the STATE of CALIFORNIA, and DOES ONE through FIFTY, inclusive., Defendants.

ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND
GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY
INJUNCTION

CHARLES R. BREYER United States District Judge

Plaintiff
Rene Medina (“Medina”) has brought suit against
several defendants whom he alleges have interfered with his
constitutional rights in violation of 42 U.S.C. § 1983.
The source of Medina's alleged constitutional
deprivations are license conditions imposed by the California
Gambling Control Commission (the “Commission”) on
Lucky Chances Casino (“Lucky Chances” or the
“Casino”), a gambling establishment founded by
Medina and currently owned by Medina's two
sons.[1] The license conditions require Lucky
Chances to restrict Medina's involvement with the Casino
and its employees because of Medina's status as a
convicted felon. Medina alleges that the Commission has
unlawfully exceeded the bounds of its jurisdiction and asks
for a preliminary injunction against the defendants.
Defendants have moved for dismissal.

Rene
Medina emigrated from the Philippines in 1971 and has since
founded several businesses in the San Francisco Bay Area.
Compl. (dkt. 1) ¶¶ 12, 15; Medina Decl. (dkt. 10-1)
¶¶ 2-6.[2] In 1998, Medina founded Lucky Chances
Casino in Colma, California. Compl. ¶ 15; Medina Decl.
¶ 15. In 2007, he sold the casino to his two sons, Ruell
Medina and Rommel Medina, for $48, 000, 000, subject to a
promissory note. Compl. ¶ 18; Medina Decl. ¶ 28.

In
2008, Medina was convicted of three counts of felony tax
evasion in violation of 26 U.S.C. § 7201. Compl. ¶
19; Medina Decl. ¶ 32. Because of his felony
convictions, Medina is “disqualified” under the
California Gambling Control Act from holding an ownership
interest in any gambling facility. Compl. ¶ 20; Medina
Decl. ¶ 34; see Cal. Bus. & Prof. Code
§ 19859(c). As a result, Medina transferred the
promissory note in the Casino, which he and his wife
previously held personally, to the Rene and Mila Medina 2008
Irrevocable Blind Trust Agreement.[3] Compl. ¶ 21;
see Medina Decl. ¶¶ 29-30.

On
October 8, 2009, the Commission renewed all applicable state
gambling licenses for Lucky Chances, subject to the following
conditions (“2009 License
Conditions”):[4]

1. Rene Medina shall be prohibited from entering, being
present in, or in any way patronizing (a) the areas within
Lucky Chances Casino in which controlled gambling is
conducted and (b) any other areas related to the gambling
operation, such as count and surveillance rooms, including
all of the 2nd floor.

2. All future shareholders, corporate officers, key
employees, and work permit holders shall be informed of the
prohibition (as identified in condition number one) by the
General Manager within three business days of their start
state. The General Manager shall maintain all records
documenting this notification to new employees, etc., for
four years following each notification. The General Manager
of Lucky Chances shall maintain, for four years, all records
documenting the initial action taken following the September
23, 2008, Commission Meeting to inform shareholders,
corporate officers, key employees, and work permit holders of
condition number one.

3. Ruell Medina and Rommel Medina, licensed as shareholders
in Lucky Chances, Inc., shall each be individually
responsible for ensuring that all conditions placed on the
Lucky Chances license are fully complied with, including but
not limited to duties placed upon the General Manager.

4. If Rene Medina is observed at any time by any employee
entering, or being present in, (a) the areas within Lucky
Chances Casino in which controlled gambling is conducted or
(2) [sic] any other areas related to the gambling operation,
such as count and surveillance rooms, including all of the
2nd floor, the General Manager or manager in charge shall
within 30 minutes telephone (1) the California Gambling
Control Commission (Commission), and (2) the Department of
Justice, Bureau of Gambling Control (Bureau). The call to the
Commission shall be made to the Executive Director at (916)
263-0700. The call to the Bureau shall be made to the Bureau
Chief at (916) 263-3408.

5. Any communication between Rene Medina and any shareholder
or employee of Lucky Chances concerning the operation of the
Lucky Chances cardroom business shall be disclosed to the
Executive Director and to the Bureau Chief within one
business day of the communication. This disclosure
requirement applies to both oral and written communications.
This disclosure must be made in writing. The General Manager
shall maintain records documenting each disclosure for four
years following the disclosure.

C.
October 21, 2014 Investigation of Lucky Chances Casino by the
Bureau of Gambling Control

On
October 21, 2014, Special Agents from the California
Department of Justice, Bureau of Gambling Control (the
“Bureau”) conducted an unannounced compliance
inspection of Lucky Chances. Compl. ¶ 27; see
Compl. Ex. A (Investigation Report).[5]The Special Agents
interviewed employees, imaged computers, and accessed
documents during the inspection. Id. The focus of
the Special Agents' investigation was to determine if
there was any relationship between Lucky Chances'
employees and the construction and maintenance of Rene
Medina's personal residence in Woodside, California.
Compl. ¶ 28; Investigation Report at 1-2.

Based
on the information obtained during the inspection, Bureau
Chief Wayne J. Quint, Jr. brought an Accusation before the
Commission against Lucky Chances on August 12, 2015. Compl.
¶ 29; Compl. Ex. B (Accusation) ¶¶
1-2.[6]
The Accusation included two causes of action for violations
of Lucky Chances Casino's license conditions.

The
first cause of action alleged a violation of License
Condition Five, which required “any communication
between Rene Medina and any shareholder or employee of Lucky
Chances concerning the operation of Lucky Chances cardroom
business” to be disclosed to the Bureau. Accusation
¶ 3. The Accusation alleged that “[o]n multiple
occasions in 2013 and 2014, Lucky Chances provided
construction, landscaping, housekeeping, and other valuable
services incident to the construction of Rene and his wife,
Mila, Medina's home . . . The wages, salaries, and other
costs incurred by Lucky Chances in connection with this work
were paid from the operating funds of Lucky Chances, Inc.,
which, in turn, derived from the proceeds of controlled
gambling activities.” Id. Further, the
Accusation alleged that, in order to schedule and coordinate
these services, “Rene Medina communicated on numerous
occasions with the employees and/or their supervisors.”
Id. The Accusation alleged that, because none of the
communications between Rene Medina and Lucky Chances'
employees were disclosed to the Bureau, each constituted a
violation of License Condition Five. Id.

The
second cause of action alleged a violation of License
Condition Three, which provides that Ruell Medina and Rommel
Medina are individually responsible for ensuring that Lucky
Chances comply with all license conditions. Id.
¶ 4. The Accusation alleged that “[n]either Ruell
Medina, nor Rommel Medina took any actions to ensure
compliance with condition five of the Lucky Chances license,
” and thus violated condition three of the Lucky
Chances license. Id.

The
Accusation requested a revocation of Lucky Chances
Casino's licenses and denial of Ruell Medina's and
Rommel Medina's applications for renewal of their owner
gambling licenses. Id. at 8.

D.
The Administrative Law Judge's September 16, 2016
Proposed Decision and Order

ALJ
Miller's findings included the following: In 2013 and
2014, Rene Medina improperly used Lucky Chances employees to
help design and build his new residence in Woodside,
California.[8] Proposed Decision and Order ¶¶
14-17. Either Lucky Chances' facility manager, Lucky
Chances' day-shift housekeeping and maintenance
supervisor, or Rene Medina himself would request employees to
perform services “off-site”-sometimes during
regular work hours. Id. It was not uncommon for
Lucky Chances' maintenance employees to clock-in on the
Kronos time keeping machine at the Casino and then leave to
work off-site for Rene Medina, without clocking-out.
Id. ¶ 15. Because the employees did not report
their whereabouts, Lucky Chances compensated them for
services performed for Rene Medina. Id. ¶¶
15-16. Moreover, employees helped Rene Medina order and
purchase materials at a discounted rate using Lucky
Chances' wholesale license. Id. ¶ 18. The
total value of labor, materials, and sales tax Rene Medina
accrued was $244, 923.85. Id. ¶ 20. He has
since reimbursed the full amount to Lucky Chances. See
id.

Based
on his findings, ALJ Miller recommended dismissal of the
Accusation against Lucky Chances. Id. at 17. ALJ
Miller concluded that “the evidence did not establish
any material involvement by a disqualified person in Lucky
Chances' gaming operations”; that “[n]either
Rommel Medina nor Ruell Medina had prior knowledge that Lucky
Chances had incurred expenses or provided services on Rene
Medina's behalf”; that “[t]he expenses
incurred and services provided had nothing to do with the
‘operation of the card room business'”; and
that the contacts with Rene Medina were not material to the
card room business. Id. ¶¶ 32, 36, 42. ALJ
Miller concluded that “no disclosure to the Bureau or
the Commission was required.” Id. ¶ 42.

E.
The Commission's February 9, 2017 Decision and
Order

After
receiving written arguments from both sides, the Commission
ultimately rejected ALJ Miller's Proposed Decision and
Order and issued its February 9, 2017 Decision and Order,
based on the Accusation. Compl. ¶ 34; see
Compl. Ex. D (Decision and Order).[9]

The
Commission held that there was material involvement by a
disqualified person with a licensed gambling operation, and
the ownership or management thereof, in violation of Business
& Professions Code § 19823(a)(2). Decision and Order
at 26. As a result, the Commission suspended Lucky
Chances' state gambling licenses for fourteen days, and
ordered that, in lieu of the suspension, Lucky Chances could
pay a monetary penalty of 50% of Lucky Chances' average
daily gross gaming revenue. Id. at 30-31. The
Commission also imposed the following new conditions
(“2017 License Conditions”) on Lucky Chances'
gambling license:

1. Rene Medina shall be prohibited from entering, being
present in, or in any way patronizing any areas on Lucky
Chances' property.

2. All future shareholders, corporate officers, key
employees, and work permit holders shall be informed of the
prohibition (as identified in condition number one) by the
General Manager within three business days of their start
date and shall maintain a record of this notification while
they are affiliated with the cardroom.

3. Ruell Medina and Rommel Medina, licensed as shareholders
in Lucky Chances, Inc. shall each be individually responsible
for ensuring that all conditions placed on the Lucky Chances
license are fully complied with, including but not limited to
duties placed upon the General Manager.

4. If Rene Medina is observed at any time by any employee
entering, or being present in any areas of Lucky Chances'
property, the General Manager or manager in charge shall
within 30 minutes telephone (1) the California Gambling
Control Commission (Commission) and (2) the Department of
Justice, Bureau of Gambling Control (Bureau). The call to the
Commission shall be made to the Executive Director at (916)
263-0700. The call to the Bureau shall be made to the Bureau
Chief at (916) 227-2377.

5. Rene Medina shall not have any communication, directly
or indirectly, with any employee or owner of Lucky
Chances, except that Rene Medina may communicate with
his immediate family members provided the communication does
not relate to any part of [Lucky Chances'] business.

6. Any communication between Rene Medina and any shareholder
or employee of Lucky Chances concerning the operation of the
Lucky Chances card room business shall be disclosed to the
Executive Director and to the Bureau Chief within one
business day of the communication. This disclosure
requirement applies to both oral and written communications.
This disclosure must be made in writing. The General Manager
shall maintain records documenting each disclosure for four
years following the disclosure.

Compl. ¶ 35; Decision and Order at 31-32 (emphasis
added). On March 28, 2017, the Commission clarified that the
new conditions “require the licensees to exclude Rene
Medina from the entire property, including the non-gaming
areas . . . the gift shop, restaurant, and common
areas.” Compl. ¶ 43; Compl. Ex. E
(Letter).[10]

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